China’s rate of investment in real estate projects slid to a six-year low in September as the nation’s property developers continued to shy away from new projects in the face of rising costs and uncertain demand.
Figures released this week by the National Bureau of Statistics showed that growth of investment in the property industry fell to just 2.6 percent through the first nine months of 2015, down from 3.5 percent for the period from January through August.
The lack of new activity came as growth in housing sales levelled off in what is traditionally one of the year’s busiest months for the property industry. The slump was also reflected in land sales where spending on new sites fell by more than 33 percent compared to the same period last year.
The slowdown in the property industry, which makes up at least 15 percent of China’s economy comes after repeated government moves to rekindle the market and help the country avoid its lowest overall economic growth since the world financial crisis in 2009.
Fewer Housing Starts Making It Tough to Hit GDP Targets
China’s real estate developers invested a total of RMB 7.05 trillion into projects so far this year according to the bureau’s figures, an increase of 2.6 percent compared to the same period last year. China does not publish month by month breakdowns of its real estate investment figures.
The slowdown from the 3.5 percent growth in investment racked up in the first eight months of the year reflects developer concerns over the prospects for selling new projects as land costs remain high and many cities still struggle with a backlog of unsold homes.
The lack of buyer enthusiasm was reflected last month in the flattening growth rate in sales of real estate both in terms of area and value. Sales of real estate by value grew by just 15.3 percent in the period from January through September compared to the same period last rate. The nine-month growth rate was the same as that reached in the period from January through August, and was the first time since February that the pace of sales growth had failed to increase.
Looser Policies Fail to Spark the Market
Slowing growth in home sales in September is surprising given the government’s move to ease downpayment requirements for buyers of additional homes at the end of August. Downpayment levels for existing homeowners in all but the country’s largest cities were reduced from 30 percent to 20 percent in a move aimed at brining more buyers into the market.
Despite loosening the home purchase restrictions, however, potential buyers appear to have been content to stay home and keep their cash in September. The continuing lack of demand may also explain the decision to have the central bank lower downpayment levels for first time homebuyers from 30 percent to 25 percent at the end of September.
Slower Housing Market Hits the Larger Economy
The government’s apparent inability to rejuvenate the housing market appears to have contributed to overall economic performance through the first three quarters that skidded to a post-financial crisis low. Figures released this week show that China’s GDP growth fell to just 6.9 percent in the third quarter, the first time that the rate for the period had fallen below 7.0 percent since 2009.
To be sure, the government still has some measures in its toolbox that could spark the housing market, but authorities are still trying to centrally regulate a market that appears increasingly stratified between major cities booming from China’s shift to a service economy and factory towns struggling to recover from a slowdown in export-led manufacturing.
Split Between First Tier Cities and Rest of the Country May Be Widening
Although land sales growth nationally fell to a new low of -33.8 percent over the first nine months, authorities in Shanghai cancelled a planned land auction this month out of fear that high levels of developer demand would lead to new price records. While the bump in land sales would have helped to pull up the national average, Shanghai officials were apparently afraid of angering central decision-makers still seeking to avoid headlines of new levels of home unaffordability in the country’s largest cities.
With the land sale case and other data indicating that China’s first tier cities are back to the days of double-digit gains in home prices, the weak nationwide numbers released this week indicate that the country still has far to go before the housing market recovers in many of China’s smaller cities.